The Case for Rapid Repayment of Student Debt

New entrants to the workforce need to prioritize student debt reduction over contributions to 401(k) plans.

The first of eight essays in my new paper Financial Decisions for a Secure and Happy Life makes the case that new entrants to the workforce must often delay savings for retirement to quickly eliminate most if not all their student debt.  There are several reasons for this finding.

Reason One:  Failure to reduce student debt to a manageable debt level often leads to poor credit and higher borrowing costs on auto loans, credit cards, private student loans, and mortgages.

Reason Two:  A person using a short maturity loan will pay substantially less in interest than a person using a long maturity loan.

Reason Three:  The decision to enroll in an Income Driven Repayment loan and only pay the minimum balance will often result in increased loan balances and substantially higher lifetime interest payments. 

Reason Four:  The quick reduction of student debt frees up cash for other financial priorities including increased savings for retirement.

Reason Five:  Most young student borrowers choosing to immediately save for retirement on their first job will raid their 401(k) plan and pay tax and penalty.

Reason Six:  The rapid elimination of student debt facilitates the purchase of a first home, lower mortgage costs, and higher house equity, an important source of wealth. 

The succinctly written eight essays in  Financial Decisions for a Secure and Happy Life can be obtained for $7.00.  I suspect you will find the financial strategies and tips outlined there worth much more.

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